FOMC Minutes

TWENTY-FOURTH ANNUAL REPORT

OF THE

BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

COVERING

OPERATIONS

FOR THE YEAR 1937

UNITED STATES OF AMERICA

WASHINGTON: 1938

218

ANNUAL

REPORT OF BOARD OF GOVERNORS

other seasonal requirements, for the purpose of maintaining at

member banks an aggregate volume of excess reserves adequate for

the continuation of the System's policy of furthering economic re

covery through monetary ease; and the executive committee is au

thorized from time to time to direct a reduction of the holdings

of such obligations when the seasonal influences are reversed or if

other influences make their retention unnecessary for the purposes

of this resolution. It is understood that the executive committee,

in the exercise of this authority, will not increase or decrease by more

than $300,000,000 the amount of securities now in the System open

market account without another meeting of the Federal Open

Market Committee."

"RESOLVED, that, with a view to cooperation in effectuating the pol

icy declared in the above resolution the Committee recommend to

the Board of Governors of the Federal Reserve System that it re

quest the Secretary of the Treasury favorably to consider the de

sterilization of approximately $300,000,000 of gold out of the Treas

ury inactive account, the time and method of such desterilization to

be determined by the Secretary of the Treasury in consultation and

cooperation with the executive committee of the Federal Open

Market Committee."

The foregoing resolutions were adopted for the reasons set forth in

the following statement which was approved unanimously by the Com

mittee:

"The Federal Open Market Committee met in Washington on

September 11 and 12 and reviewed the business and credit situa

tion. In view of the expected seasonal demands on the banks for

currency and credit during the coming weeks the Committee author

ized its Executive Committee to purchase in the open market from

time to time sufficient amounts of short-term U. S. Government

obligations to provide funds to meet seasonal withdrawals of cur

rency from the banks and other seasonal requirements. Reduction

of the additional holdings in the open market portfolio is contem

plated when the seasonal influences are reversed or other circum

stances make their retention unnecessary.

"The purpose of this action is to maintain at member banks an

aggregate volume of excess reserves adequate for the continuation

of the System's policy of monetary ease for the furtherance of

economic recovery.

"As a further means of making this policy effective, the Open

Market Committee recommended that the Board of Governors of

the Federal Reserve System request the Secretary of the Treasury

to release approximately $300,000,000 of gold from the Treasury's

inactive account. The Board of Governors acted upon this recom

mendation and the Secretary of the Treasury agreed to release at

once the desired amount of gold. This will place an equivalent

amount of funds at the disposal of the banks and correspondingly

increase their available reserves.

"This action is in conformity with the usual policy of the System

to facilitate the financing of orderly marketing of crops and of au

tumn trade. Together with the recent reductions of discount rates

at the several Federal Reserve banks, it will enable the banks to

FEDERAL RESERVE SYSTEM

219

meet readily any increased seasonal demands for credit and cur

rency and contribute to the continuation of easy credit conditions."

2. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the execu

tive committee to direct the replacement of maturing se

curities in the System open market account with other Gov

ernment securities and to make such shifts between ma

turities in the account as may be necessary in the proper

administration of the account, provided that the amount of

securities maturing within two years be maintained at not

less than $1,000,000,000 and that the amount of bonds hav

ing maturities in excess of five years be not over $850,000,

000 nor less than $500,000,000.

The members of the Committee concurred in the opinion that the rea

sons for the authority granted to the executive committee at the meeting

of the Committee on May 5, 1937, to replace maturing securities and to

make shifts between securities in the System open market account were

still present and that, therefore, action renewing the authority was

necessary.

MEETING ON DECEMBER 1, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Sinclair,

Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Increase or Decrease System Account.

The following resolution was adopted by unanimous

vote:

"RESOLVED, that, until the adjournment of the next meeting of the

Committee, the executive committee is authorized to direct the pur

chase in the open market from time to time of sufficient amounts of

Treasury bills or other short-term Treasury obligations to provide

funds to meet seasonal withdrawals of currency from the banks and

other requirements of commerce, business and agriculture by keep

ing at member banks an aggregate volume of excess reserves ade

quate for the continuation of the System's policy of maintaining

credit conditions conducive to economic recovery; and the executive

committee is authorized from time to time to direct a reduction of

the holdings of such obligations to the extent that their retention is

found to be unnecessary for the purposes of this resolution. It is

understood that the executive committee, in the exercise of this au

thority, shall not increase or decrease by more than $300,000,000

the amount of securities now in the System open market account."

The Committee had given full consideration to general business and

credit conditions and it was the general feeling that the existing volume

of excess reserves was abundant for the continuance of easy credit con

ditions and for meeting the credit requirements of commerce, business

and agriculture, that in the light of existing business and credit condi

tions effective action to meet and overcome the present business recession

should be taken outside the field of the System's various monetary pow

ers, and that the System could best contribute to the furtherance of eco-

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ANNUAL REPORT OF BOARD OF GOVERNORS

nomic recovery by being prepared in case of any change in conditions

to act promptly in pursuance of the general objectives set forth in the

resolution. In order to place the System in position to meet such de

velopments as might require further open market operations in accord

ance with the System's policy during the period before another meeting

of the full Committee, it was decided to continue the authority of the

executive committee to engage in open market operations.

2. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the ex

ecutive committee to direct the replacement of maturing

securities in the System open market account with other

Government securities and to make such shifts between

maturities in the account as may be necessary in the proper

administration of the account, provided that the amount

of securities maturing within two years be maintained at

not less than $1,000,000,000 and that the amount of bonds

having maturities in excess of five years be not over $850,

000,000 nor less than $500,000,000.

The members of the Committee agreed that the authority granted to

the executive committee at the previous meeting of the full Committee

to replace maturing securities and to make shifts in the System open

market account should be continued for the same reasons as prompted

the existing authority.